What does constant returns to scale mean?
Understand the Problem
The question is asking for an explanation of the concept of constant returns to scale, which refers to a situation in economics where increasing all inputs by a certain percentage results in an equal percentage increase in output. This is an important concept in production theory and helps understand how firms expand their operations.
Answer
Proportional output increase to inputs.
Constant returns to scale occur when the output increases in exactly the same proportion as the inputs.
Answer for screen readers
Constant returns to scale occur when the output increases in exactly the same proportion as the inputs.
More Information
Constant returns to scale imply that if a company doubles its inputs (e.g., labor and capital), its outputs will also double, maintaining efficiency.
Tips
A common mistake is confusing constant returns to scale with increasing returns to scale or diminishing returns to scale, which involve non-proportional changes between inputs and outputs.
Sources
- The web page with info on - Economics Help - economicshelp.org
- Constant Returns to Scale | Use, Benefits & Examples - Study.com - study.com
- Returns to scale - Wikipedia - en.wikipedia.org
